Budget sacrifices focus as a delicate balancing act

 

BUDGET SACRIFICES FOCUS AS DELICATE BALANCING ACT CONTINUES

The 2013 Budget, tabled in Parliament on 27 February, was another example of the Treasury’s increasingly difficult task of balancing the developmental needs of the state with a tax base that is too small, says Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at South African Institute of Professional Accountants (SAIPA).

Speaking at a post-budget briefing hosted today by SAIPA’s newly launched Centre of Tax Excellence (CoTE), Mr Retief argued that Minister Pravin Gordhan had been very careful to not be perceived as increasing personal or corporate taxes. The Minister is all too aware that tax payers are losing patience with the combination of high taxes and ineffective service delivery.

“The only way he can relieve some of the pressure on the tax base is to grow it, and that takes time,” Mr Retief observed. “Meanwhile, he needs to raise the money somehow. That’s the lens through which one needs to look at this budget.”

In this analysis, it is clear that the Treasury is in fact increasing taxes via something that is akin to sleight of hand. Sin taxes, the proposed carbon tax, the increased fuel levy, the greater burden of tax administration—all constitute less money left in the pockets of both corporate and individual tax payers.

“Some of these taxes are packaged as incentives to encourage better behaviour, but I believe they are ineffective in that regard,” Mr Retief argued. “They are ultimately aimed at raising revenues for the fiscus without (apparently) raising taxes.”

“My overall impression is that this was a budget that was neither good nor bad—it was primarily a balancing act,” commented Mr Retief. “The Minister made sure that every stakeholder interest received something, but in the process we have ended up with a budget that sacrifices focus for broadness: that’s a disappointment because when you have limited resources, prioritisation is actually the most important thing you can do.”

Andrew Wellsted, head of tax for South Africa at attorneys Norton Rose, had a slightly different opinion. Speaking at the same briefing, Mr Wellsted said that incentives had to be welcomed but that they risked being ineffective if they were not substantial enough. For example, the youth employment incentive and the special economic zones were two excellent ideas but the incentives needed to be both substantial enough to get people excited and not too onerous to access.

“Too much red tape will surely kill these and other potentially positive incentives,” Mr Wellsted said.

Both Retief and Wellsted welcomed the absence of any profound changes to tax administration, citing the number of changes the tax industry has had to cope with over the past five years. The Tax Commission to be chaired by Judge Dennis Davis this year was an indication, Mr Wellsted believes, that Treasury intends to take a considered approach to further changes and, hopefully, to take a holistic view of the tax landscape. In particular, the commission needs to take into account the total effective tax burden that business has to bear.

“You cannot just consider one tax in isolation,” Mr Wellsted said. “The commission’s scope will be crucial in determining its success.”